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Sasol tackles power outages to secure steady production

Interrupted power supply was one of a number of issues that dragged down Sasol’s results for the year to end-June

20 August 2018 - 08:50
Lisa Steyn

A man walks past a Sasol synthetic fuel plant. Picture: REUTERS

Sasol has taken matters into its own hands to ensure it has a reliable power supply at its Secunda synfuels operation after several unplanned electricity supply interruptions from Eskom over the past year have had a “significant” financial effect on the company.

Interrupted power supply was one of a number of issues that dragged down Sasol’s results for the year to end-June. Sasol’s earnings more than halved from R21.5bn in 2017 to R10.1bn in 2018.

Although Sasol joint president and CEO Bongani Nqwababa would not be drawn on exactly how much the disruptions in Eskom’s electricity supply had cost the company, he said it was “significant” — enough to have been flagged in the annual results.

Nqwababa said the interruptions attributed to Eskom related to maintenance issues.

Sasol would now introduce a redundancy (a duplication of systems) to increase the reliability of supply. A single line feeding power to the plant would now become two, providing a back-up in the event of a power failure.

Nqwababa said Sasol would also develop an additional substation, in conjunction with Eskom. The cost to Sasol was yet to be determined.

Energy analyst Chris Yelland said it was difficult to estimate the cost of a substation without knowing the particulars. However, he said dual redundancy was an expensive exercise as it effectively doubled the cost, but that it was standard practice, particularly for a plant.

Sasol is a large electricity consumer and is one of the founding members of the Energy Intensive User Group of Southern Africa (EIUG), which has been active in lobbying for secure power supply for big business.

EIUG CEO Xolani Mbanga said problems with coal supply and industrial action leading to load shedding remained the biggest risk for energy-intensive users who consumed 40% of Eskom’s supply. The group worked closely with Eskom and had seen an improvement in electricity supply in recent weeks, Mbanga said. “The new leadership has been much more open and vocal,” he said.

Sasol reported that plant interruptions had lowered its synfuels operations volumes 3%, but said this included two internal outages. The company said the interruptions had led to base chemicals sales volumes dropping 1% and liquid fuels sales volumes dropping 2%. Sasol fell short by one million barrels of a forecast 60 million barrels in fuel sales for the year being reported. Nqwababa, however, said this was also due to a sluggish local economy and higher fuel prices.

The company said it expected 2019 to be a defining year for it as its Lake Charles Chemicals Project started.

The project is on track and 88% complete, while the cost remains at $11.13bn, $9.8bn of which has been spent.

Commissioning activities were under way with several systems and machinery being tested, Sasol said. The project is expected to contribute $250m-$300m to cash flows in 2019.

The strong rand also affected Sasol’s Chlor Vinyl’s business, which makes plastic piping and suffered a R5.2bn impairment. An impairment is a permanent reduction in the value of a company’s asset.

This and other impairments, such as those related to the scrapping of a gas-to-liquids project in the US and divesting from Canadian shale-gas assets, brought Sasol’s “remeasurement items” to R9.9bn for 2018.

A R2.9bn share-based payment to its Khanyisa empowerment scheme had also negatively affected its overall profit.